Iron Condors

[jones247]

Quote from dagnyt:

I must be missing something.

When you say $5 spread between...do you mean:

buy 95/100 call spread; buy 85/90 put spread; paying a total of $4?

What would you pay for the 95/100 call spread and 80/85 put spread?

Mark

Hi Mark,

I'm sorry, but when I stated spread, I meant strike price. In a nutshell, my limit orders cannot exceed 80% of the potential max profit. Therefore, as you mentioned above, if the strike price between the long & short leg is $5, then I cannot pay more than $4 in total to establish the bull call spread & the bear put spread simultaneously.

Hopefully this helped...

Walt

 

[jones247]

Quote from mike007:

http://www.theoptionsguide.com/reverse-iron-condor.aspx

That is what I mean. Also that site has all the complex option orders and how to create them.

Thanks for the link Mike... However, I'm more afraid of establishing my positions otm, as indicated by the options guide. Although it gives a favorable risk:reward ratio, the lower probability of success factor makes it a high risk trade in my opinion. Personally, I prefer to have a more unfavorable risk:reward ratio, with a high probability of success, which is atm or itm entries. I would enter these positions with stocks, as opposed to indices. Indices are best for the Iron Condor. With the "reverse" iron condor, I would enter right before earnings and primarily with high volatility stocks.

I guess I'm in search of the optimum "sweet spot" (i.e. 1 or 2 or 3 strikes from market price???)

Walt

 

[Sparks]

I have been using Iron Condors for the last three months and find it to be an excellelent strategy for a more STABLE market (I..E. less gov't interference) If you are a saavy condor investor, you can easily adjust your positions and end up winning. But if you lack the experience and/or intuition necessary to adjust your positions, I would stay away until the market becomes more rational and stable. I find bear put/call spreads to be profitable plays in this market.

 

[dagnyt]

Quote from jones247:

Personally, I prefer to have a more unfavorable risk:reward ratio, with a high probability of success,
Walt

Walt,

OK.

The reverse iron condor is simply a position that's equivalent to an iron condor.

You buy the ITM, paying (for example) $3.50 and I sell the OTM for $1.50. There should be a minor price difference to reflect the fact that you pay, and I collect, interest.

Same probability of success. Same risk/reward. Positions are equivalent.

Mark

 

[jones247]

Quote from dagnyt:

Walt,

OK.

The reverse iron condor is simply a position that's equivalent to an iron condor.

You buy the ITM, paying (for example) $3.50 and I sell the OTM for $1.50. There should be a minor price difference to reflect the fact that you pay, and I collect, interest.

Same probability of success. Same risk/reward. Positions are equivalent.

Mark

Hi Mark,

A high probability of success with a reverse iron condor means a high probability of failure with an iron condor, and visa versa...

Walt

 

[jones247]

ATM IC pays more, but has a high probability of failure. Whereas ATM Reverse IC pays less, but has a high probability of success.

Walt

 

[jones247]

Now, with OTM IC, it pays less, but has a higher probability of success. However, OTM Reverse IC pays more, but has a higher probability of failure.

 

[newguy05]

So a reverse iron condor you basically long the gut(otm strangle) and short the wings(even a further otm stangle).

I dont think that's a very good play in this environment, you are long vega (with vix at a record) and buying theta. Where as iron condor is the opposite, you are short vega and selling theta.

The one advantage i see with reverse iron condor is that it's more managable. For example, if the market gaps then your iron condor could become close to max loss very quickly where as reverse iron condor your max risk is if the market does not move, which is fighting against theta - you can control the risk in a more managable way. But of course if IV crashes you will take a loss quickly too, that's why i dont think it's good to do reverse iron condor in this market.

mark, thanks for the response, i will be getting your book too. Need some good reading as not much to trade lately for non-daytraders.

 

[Grinder]

The reverse IC might not be ideal in this environment but neither is the IC. I'd take the reverse condor a few months out on a stock or index thats been bouncing, which is just about all of em. If it doesnt move enough in a few days close out, better probability & easier to manage.

 

[jones247]

Am I wrong in my understanding that debit spreads are the best ways to neutralize IV, even if you're slightly short vega. However, even if I'm short vega with a "reverse" IC, I'll be able to offset it by being long delta & long gamma. Of course, I'm then short theta.

Wouldn't it be a wash once we compare the impact of the greeks? Therefore, the biggest issue at hand would be "price movement". In this environment, price movement is all but guaranteed, especially in certain sectors & right before earnings release.

Walt